Macroprudential and monetary policy interaction: the role of early activation of the countercyclical capital buffer

Carsten Detken, Hannah S. Hempell and Mara Pirovano

Macroprudential Bulletin, 2025, vol. 31

Abstract: Amid changes in the global macro-financial environment, macroprudential policy within the banking union and beyond has increasingly prioritised the proactive enhancement of resilience. This article argues that this shift towards a more pre-emptive implementation of macroprudential policy has enhanced its complementarity with monetary policy. A sufficiently resilient financial sector is essential to exclude conflicts between price stability and financial stability, the respective primary objectives of monetary and macroprudential policies, as highlighted in the latest 2025 ECB’s monetary policy strategy statement. Without sufficient resilience, monetary policy could at times negatively affect financial stability, for example when the monetary policy stance remains very accommodative for extended periods or undergoes significant tightening over a short time span. In particular, the early activation of the Countercyclical Capital Buffer (CCyB) fosters banking sector resilience by ensuring the availability of sufficient capital that can be released in the event of (also non-financial) shocks. This approach supports monetary policy to focus solely on its primary objective of price stability, thereby largely eliminating the potential for conflict between price stability and financial stability. JEL Classification: E52, E61, G28

Keywords: Countercyclical Capital Buffer; Macroprudential policy; Monetary policy (search for similar items in EconPapers)
Date: 2025-08
Note: 229418
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